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USDA’s June U.S. and world wheat supply and demand estimates were contrary to trade expectations. The trade was expecting a 2 percent reduction in U.S. winter wheat production. The USDA raised the production estimate 2 percent compared to the May WASDE estimate.

The trade projected U.S. winter wheat production to be 1.392 billion bushels, down from USDA’s May estimate of 1.424 billion bushels. USDA’s June winter wheat production estimate was 1.45 billion bushels.

USDA projected world wheat production to be 24.6 billion bushels. USDA’s May estimate was 24.4 billion bushels. Last year’s world wheat production was 23.8 billion bushels. Record world wheat production was 25.1 billion bushels in 2009.

United States wheat ending stocks for the 2011-2012 marketing year was lowered from May’s 702 million bushels to 687 million bushels. The world wheat ending stocks estimate was 6.8 billion bushels. World 2010-2011 marketing year ending stocks are projected to be 6.7 billion bushels.

No changes were made from May’s projected U.S. wheat use. With higher world wheat production and stocks, the projected 1.05 billion bushels exports in 2011-2012 may be too high.

Russia, which did not export wheat in 2010-2011, is now selling wheat for export. During the 2010-2011 wheat marketing year, former Soviet Union countries exported 225 million bushels. USDA’s estimate for the 2011-2012 marketing year is 452 million bushels. Much of this increase may be at the cost of U.S. exports.

It was reported that Russia’s first export wheat was sold for $70 per metric ton ($1.90/bu) less than U.S. export wheat. Russia and the FSU countries have a large transportation advantage to Middle Eastern and North African countries.

The initial market price reaction was little to no change. First, the market may not believe USDA’s estimates. Second, estimated corn production was lowered from 13.4 billion bushels to 13.2 billion. Corn ending stocks were projected to be 695 million bushels compared to 900 million bushels in the USDA’s May WASDE report.

Lower corn stocks will support soft red winter wheat prices and will have a positive impact on hard red winter wheat prices.

The projections in the June WASDE report highlight the risk for wheat prices. If, and that is a big IF, world wheat production ends up above current projections, U.S. wheat exports will be lower than projected and wheat prices will decline.

The wheat marketing year price trend is normally set in late August and early September. Given production uncertainty, wheat prices will remain volatile. In November, the KCBT December wheat contract price could easily be $12 or $8. At this writing, the KCBT December contract price is $9.25.

It costs about 7 cents per bushel per month (4 cents storage + 3 cents interest) to store wheat in commercial storage. That is 35 cents for the next five months. Thirty-five cents is less than some days’ price moves.

Oklahoma’s local elevator basis is about a minus 35 cents. Texas panhandle basis are in the minus 50-cent range. This is a very favorable basis and could easily decline 20 to 30 cents. The basis is telling producers to sell now.

The bottom line is that no one knows what prices will do. If you can’t afford lower prices, sell your wheat now. If you can afford the price risk, consider selling one-third of the wheat now, one-third in late September/early October, and the final one-third in November.